Wilful defaulters get lifeline from regulator

“Banks may review the reasons for classification of the borrowers as wilful defaulters — specially in old cases where the manner of classification of a borrower as a wilful defaulter was not transparent — and satisfy itself that the borrower is in a position to rectify the wilful default,” the RBI said in its circular on ‘Prudential guidelines on restructuring of advances by banks’ issued this week. However, the borrowers indulging in frauds and malfeasance will continue to remain ineligible for restructuring.

A wilful defaulter is a borrower who has defaulted in meeting his payment/repayment obligations to the lender even when he has the capacity to honour the said obligations. As per data collected by Credit Information Bureau of India Ltd (CIBIL), as on March 31, 2008, there were 2,681 accounts (Rs 25 lakh and above) involving Rs 10,433 crore of wilful defaults by borrowers against whom banks have filed suits in various courts.

The RBI had recently expanded the definition of ‘wilful defaulters’ by including those companies which try to dispose of the mortgaged property without the knowledge of bank or the lenders. The RBI had earlier said no additional facility should be provided to the listed wilful defaulters and entrepreneurs. The regulator had said companies which are guilty of siphoning and diversion of funds should be debarred from institutional funds for five years.

The RBI circular issued this week said no account should be taken up for restructuring by the banks unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. “Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects or activity financed by banks would be treated as an attempt at ever greening a weak credit facility and would invite supervisory concerns/action,” the RBI warned.

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